Secured credit cards can help rebuild bad credit

Many people find the New Year is a good time to get your finances in order and if you are buried in debt, there's a little known way to rebuild your credit.

Some people might think that once their credit is in the toilet, they'll no longer qualify for a credit card. I'm here to tell you that is not true. There are actually credit cards out there available to you and at very good interest rates.

"My credit's been in the dumper for a long time," said Robert Fowler of San Francisco.

Fowler looked over his credit report and said once he got behind in his payments, he couldn't catch up.

"It snowballs on you and you just can't get there unless you can come up with a lump sum," said Fowler.

Fowler hasn't had a credit card for about five years. One possible solution is a secured credit card.

"For those who are trying to rebuild damaged credit, it's the single best way in getting back on your feet if you can't get an ordinary unsecured card," said Joe Ridout from Consumer Action.

Secured credit cards work this way: you deposit let's say $300 into a deposit account. That money is held as collateral for your credit in exchange for $300 in credit. Consumer Action in San Francisco just did a survey of secured credit cards. The consumer group the one from Golden 1 Credit Union.

"They actually have a secured card that has no annual fee, and what's more, you actually earn 1 percent interest on the amount you deposit in the dedicated bank account. Try finding 1 percent interest in an ordinary bank nowadays," said Ridout.

Ridout also likes the Capitol One secured credit card. He says you can put down as little as $49 and get a credit limit of $200. Fowler knows not all secured credit cards are created equal. In fact, his experience with secured credit cards has not been good.

"I don't like them at all unless you can hook up with one through a bank where you have an account, a reputable bank," said Fowler.

"There are a couple that will give you a secured card with no annual fee. The interest rates can vary quite a bit, but if you're trying to rebuild credit, it's probably best not to carry any kind of balance at all and just use the card for the purposes of rebuilding credit," said Ridout.

Ridout says secured credit cards are definitely a better option than pay day lenders or predatory credit cards that charge you super high interest rates and there's a ton of them out there.